To limit the potential misuse of Power of Attorney (PoA) submitted by clients to stockbrokers, Sebi on Monday came out with new guidelines where implementation of a new document will be mandatory for transferring securities toward deliveries and settlements.
The execution of the document – Demat Debit and Pledge Instruction (DDPI) – will also be applicable to pledge or re-mortgage of securities.
The new guidelines, which will be effective from July 1, come against a background of instances of abuse of activity software.
Under the DDPI, clients can expressly agree to authorize a stockbroker and custodian participant to access their beneficiary’s ownership account for the limited purpose of fulfilling payment obligations to settle trades they execute, according to a publication.
The use of DDPI will be limited to two purposes only. One relates to the transfer of securities held in the account of the beneficial owner of a client towards deliveries or settlement obligations related to a stock exchange arising from transactions executed by that client.
The second purpose will be to pledge/re-pledge the securities in favor of the Trading Member (TM) / Clearing Member (CM) for the purpose of meeting the margin requirements of the client.
With the implementation of the new guidelines, Sebi said the work program will no longer be implemented for the two purposes.
“DDPI should serve the same purpose as PoA and significantly mitigate PoA abuse,” Sebi said, adding that a customer can use DDPI or choose to complete the settlement by issuing a physical delivery instruction voucher (DIS) or electronic delivery instruction voucher (eDIS) themselves. .
The watchdog said the existing activity programs will remain in place until such time as the customer cancels it. Thus, the securities broker and depository participant will not directly or indirectly compel clients to implement DDPI or refuse services to the client if the client refuses to implement DDPI.
DDPI shall only be executed if the Client has given their express consent to do so, including online trading. It must be appropriately sealed and can be digitally signed by customers.
According to the post, the business plan will be optional and should not be insisted upon by the stockbroker and depository participant for opening a client account. A provision to this effect will be included under the subheading “Additional Rights and Obligations” of the Rights and Obligations Document.
Sebi said that depositors will have to ensure that the transfer of securities matches and confirms the net delivery obligation to the client arising from the trade executed on the exchange, as stipulated by the clearing company for the depositors for each settlement date.
This would be to implement a DDPI to fulfill delivery/settlement obligations, prior to the actual transfer of securities being carried out based on the details provided by the securities broker and the custodian participant.
Moreover, the regulator said that the transferred securities based on DDPI submitted by the client will only be credited to the account of the trading member pool of the client. The DDPI provided by the customer will be recorded in the customer’s demat account by TM/CM.
SEBI has asked exchanges and warehouses to ensure that the securities broker and the depository that provides the DDPI facilities have enabled its clients to cancel or cancel the DDPI offered by them.
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